Virgin Australia goes into voluntary administration

Virgin Australia has gone into voluntary administration, leaving at least 15,000 jobs in limbo and Australia facing a future without a second airline.

SOURCE: wikimedia

Accounting firm Deloitte has been appointed as administrators to help the troubled carrier restructure amid the devastating impact of the coronavirus crisis.

Virgin Australia is carrying about $5 billion in debt and its cash flow has collapsed due to the pandemic.

The move to place the company into voluntary administration comes after the Federal Government rejected a $1.4 billion bailout to keep the airline afloat.

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ASX Statement

In a statement to the ASX this morning, Virgin Australia said the decision was made to “recapitalise the business and help ensure it emerges in a stronger financial position on the other side of the COVID-19 crisis”.

“The decision comes as the Group has continued to seek financial assistance from a number of parties, including state and federal governments, to help it through the unprecedented crisis, however it is yet to secure the required support,” the statement said.

“Virgin Australia will continue to operate its scheduled international and domestic flights which are helping to transport essential workers, maintain important freight corridors, and return Australians home.”

Government Position

Earlier today, Finance Minister Mathias Cormann rejected calls for the Federal Government to buy a stake in Virgin Australia but said it wanted two airlines to remain in Australia.

“The Government is not in the business of owning an airline,” Mr Cormann told media this morning.

“But we do want to see two airlines continue and we believe that the opportunities (are) there out of the administration process for that to happen.”

Senator Cormann said putting the airline into administration could lead to a sustainable private-sector solution.

“It offers the opportunity for private sector interest to come forward and buy the business or assist with the recapitalisation of the business,” he said.

“There’s a lot of opportunity from here on in to ensure that there is a viable second airline in Australia moving forward.”

He said the airline’s major shareholders should be the first to step up.

Scott Morrison also addressed Virgin Australia’s decision to go into voluntary administration.“It is a road out. It is a road out and forward into the future, to ensure that the airline can emerge on the other side and we can have the strong, commercial, viable competition between two carriers in Australia, which the government believes is very important,” he said.

“But I believe it will be a challenging road ahead and I think we all understand that, and I wish the administrator all the best. Nicholas Moore will be doing that work on behalf of the government to engage with the administrator.

“I am encouraged by the fact that there are already 10 parties who have expressed interest in working with the administrator regarding Virgin’s future, and I think if we had not taken the actions that we have, and not demonstrated the patience that we have had, then what we may have ended up doing is sending $1 billion to foreign shareholders, and that was never part of my plan.

“My plan was always about seeing two viable airlines on the other side, two viable airlines that would be there not just one year from now but five or 10 years from now.”

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Josh Frydenberg has just said, in no uncertain terms, that the government is “not going to bail out” Virgin Australia’s shareholders.

“The board of Virgin Australia has chosen to put the company into voluntary administration. This is not liquidation. This is not Ansett. This is not the end of the airline,” he said.

“Rather, as the company itself has said in its statement, this is an opportunity for the company to recapitalise and come out stronger on the other side of the coronavirus crisis.

“Virgin Australia is a very good airline performing a very important role, and this is a difficult day for its staff, for its suppliers, and for the aviation sector more broadly.

“But the government was not going to bail out five large foreign shareholders with deep pockets who, together, own 90 per cent of this airline.”

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Virgin Position

Virgin chief executive Paul Scurrah said this morning: “We employ more than 10,000 people and a further 6000 indirectly, fly to 41 destinations including major cities and regional communities, have more than 10 million members of our Velocity loyalty program, and contribute around $11 billion to the Australian economy every year.

“Australia needs a second airline and we are determined to keep flying.

“Virgin Australia will play a vital role in getting the Australian economy back on its feet after the COVID-19 pandemic by ensuring the country has access to competitive and high-quality air travel.”

Virgin Group founder Sir Richard Branson addressed the decision in a tweet directed to the Virgin Australia team.

“I am so proud of you and everything we have achieved together,” he said.

“This is not the end of Virgin Australia, but I believe a new beginning. I promise that we will work day and night to turn this into reality.”

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Workforce and Ownership

In Australia, Virgin employs about 10,000 people directly and supports another 6000 jobs indirectly. About 80 per cent of its direct workforce has already been stood down.

The airline is 90 per cent foreign owned. Abu Dhabi’s Etihad owns 21 per cent of the company, while Singapore Airlines and Chinese firms HNA and Nanshan Group each hold 20 per cent. The Virgin Group has a 10 per cent stake.

The Queensland and NSW governments had been in talks about possible bailout packages, with the NSW deal contingent on whether the Brisbane-based airline would relocate its headquarters.

Virgin Australia suspended its international operations due to the COVID-19 crisis and currently flies only one domestic service between Sydney and Melbourne.

Its subsidiary Tigerair Australia has stopped flying during the pandemic.